Oil Stocks March Higher
- Market outlook turning bullish
- Refining easing back
- OPEC re-thinking high production policy
- Natural gas pipeline flows moving east-to-west
Table covers crude oil and principal products. Other products, including residual fuel oil and “other oils” are not shown, and changes in the stocks of these products are reflected in “Total Petroleum Products.” Statistics Source: Energy Information Administration “Weekly Petroleum Status Report” available at www.eia.doe.gov
The Matrix
The intensity of the rally that brought crude oil from multi-year lows at 37.75 to nearly $50 as August ended has abated – at least for now. A consolidation of the rally was underway as the Labor Day holiday approached. The Department of Energy reported an increase in crude oil inventories of nearly five million barrels in its most recent report. Commercial crude oil supplies have recovered to 455.4 million barrels. And total stocks of crude oil and products continue to march steadily higher.
This large amount of American crude oil stocks has not been enough to dampen a decided shift to bullish market psychology. The change in traders’ attitudes can be traced in part to a normal relief rally that Powerhouse anticipated in its last Weekly Energy Situation.
The earliest part of the rally was accompanied by falling open interest. This means that the number of crude oil futures contracts fell as prices began their rise, an indication that short sellers were exiting the market. The latter part of the rally on August 28-31 was supported by new buying entering the market, a sign of support for higher prices to come.
The consolidation now underway should not be mistaken for rejection of the rally. Hikers need to rest before resuming the climb. Bullish expectations have now also been supported by a change in estimating crude oil production.
The Energy Information Administration has adopted a new way to measure oil production in the United States. EIA is now collecting production data from oil field operators in 15 major producing states and the Gulf of Mexico, covering about 90 per cent of domestic oil production. It replaces estimation techniques needed because data had been coming available on a much-delayed basis.
The revised methodology suggests that U.S. crude oil production has been overstated for the first five months of 2015 by monthly amounts up to 130,000 barrels daily. Moreover, production appears to have begun falling in April of this year.
U.S. production in June is now reported as being 9.3 million barrels per day which is 100,000 barrels per day less than the revised May production level. Some analysts now suggest that crude oil output could fall to 8.8 million barrels daily in December.
This does not mean that global supplies would necessarily fall. OPEC production was up 100,800 barrels daily in August up to 32.3 million barrels per day, offsetting the new EIA production drop. OPEC has also sent out feelers on adjusting production to support price.
Supply/Demand Balances
Supply/demand data in the United States for the week ending September 4, 2015 were released by the Energy Information Administration.
Total commercial stocks of petroleum increased 5.7 million net barrels during the week ending September 4, 2015.
Builds were reported in stocks of fuel ethanol, K-jet fuel, distillates, residual fuel oil, and propane. Draws were reported in stocks of RBOB and other oils.
Crude oil supplies in the United States increased to 455.4 million barrels, a build of 4.7 million barrels.
Crude oil supplies increased in four of the five PAD Districts. PADD 1 (East Coast) stocks increased 0.4 million barrels, PADD 2 (Midwest) stocks grew 0.9 million barrels, PADD 3 (Gulf Coast) stocks expanded by 2.5 million barrels, and PADD 5 (West Coast) stocks increased 1.1 million barrels. PADD 4 (Rockies) stocks decreased 0.3 million barrels.
Cushing, Oklahoma inventories decreased to 57.3 million barrels, a draw of 0.4 million barrels.
Domestic crude oil production decreased 119,000 barrels daily to 9.218 million barrels per day.
Crude oil imports averaged 7.855 million barrels per day, a daily increase of 0.656 million barrels.
Refineries used 92.8 per cent of capacity, a decrease of 1.7 million barrels from the previous report week.
Crude oil inputs to refineries decreased 269,000 barrels daily; there were 16.389 million barrels per day of crude oil run to facilities. Gross inputs, which include blending stocks, fell 307,000 barrels to 16.673 million barrels daily.
Total petroleum product inventories saw an increase of 1.0 million barrels. Gasoline stocks fell 0.3 million barrels; total stocks are 214.2 million barrels.
Total product demand grew 0.829 million barrels daily to 20.252 million barrels per day.
Demand for gasoline increased 250,000 barrels per day to 9.438 million barrels daily.
Distillate fuel oil supply gained 0.1 million barrels. Government data show this is the fifteenth consecutive weekly build in distillate inventories. Stocks are 150.0 million barrels. National demand was reported at 3.761 million barrels per day during the report week. This was a weekly increase of 0.160 million barrels daily.
Propane added 0.6 million barrels to supply. There are 96.3 million barrels in storage. Current demand is estimated at 1.117 million barrels per day, an increase of 195,000 barrels daily from the previous report week.
Natural Gas
With reclassification, net storage injection is higher than both the five-year average and last year’s builds. The net injection reported for the week ending August 28 was 94 Bcf, up from 69 Bcf the previous week. This compares with the five-year average increase of 60 Bcf for the week and last year’s increase of 79 Bcf. However, the 94 Bcf net injection for the report week includes 8 Bcf in the East region that was reclassified from base gas to working gas. Therefore, the implied flow for the week, reflecting the actual amount that flowed into storage, is an increase of 86 Bcf to working gas stocks.
Working gas inventories for the storage week totaled 3,193 Bcf, 495 Bcf (18%) higher than last year at this time and 122 Bcf (4%) higher than the five-year (2010-14) average.
The importance of Appalachian Basin to national natural gas supply distribution was emphasized this week. The Rockies Express Pipeline (REX) Zone 3 will now operate east to west. “In 2014, more than 2.5 billion cubic feet per day (Bcf/d) of increased pipeline capacity entered service to access Appalachian natural gas. As production in these areas continues to grow, so does the amount of pipeline takeaway capacity, with 3.8 Bcf/d of new capacity online year-to-date in 2015, and more than 2.5 Bcf/d of additional capacity planned for the remainder of 2015. These 2015 projects are focused on moving gas east, west, and south of the Marcellus and Utica shale plays.”
Futures trading involves significant risk and is not suitable for everyone. Transactions in securities futures, commodity and index futures and options on future markets carry a high degree of risk. The amount of initial margin is small relative to the value of the futures contract, meaning that transactions are heavily “leveraged”. A relatively small market movement will have a proportionately larger impact on the funds you have deposited or will have to deposit: this may work against you as well as for you. You may sustain a total loss of initial margin funds and any additional funds deposited with the clearing firm to maintain your position. If the market moves against your position or margin levels are increased, you may be called upon to pay substantial additional funds on short notice to maintain your position. If you fail to comply with a request for additional funds within the time prescribed, your position may be liquidated at a loss and you will be liable for any resulting deficit. Past performance may not be indicative of future results. This is not an offer to invest in any investment program.Vol. PH 04 NO. 35
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